Wartsila Corp Unsp/Adr

Good morning, and welcome to this news conference for Wärtsilä Q1 2025 results. My name is Hanna-Maria Heikkinen, and I'm in charge of investor relations. Today, our CEO, Håkan Agneval, will start with the group highlights, then he will continue with the business performance, and after that, our CFO, Arjen Perens, will continue with the key financials. After the presentation, we will continue with the Q&A session. Håkan, it's time.

Time to get rolling. First quarter was a strong quarter. We improved our operating results and we continue to grow strong on net sales. We have an all-time high order book of about 8.5 billion euro. Net sales increased by 18% to about 1.6 billion euro. Operating results increased by 30% to 165 million euro, which corresponds to 10.6% of net sales. Comparable operating results increased by 29% to 171 million euro, which corresponds to 11% of net sales. Our journey in services continues, so good progress there. Service order intake increased by 5%. Service net sales increased by 6%. And we continue with a book to build well above 1, so at 1.12. Cash flow, we had a solid cash flow from our operating activities of 190 million euro. And as we announced before, we have concluded our strategic review of energy storage. And we also have set new financial targets on March 31st this year. Now let's look a little bit deeper into the numbers. So if you see order intake overall was down a percent, so it landed around 1.9 billion euro. You can see that on services we still continue to grow, 5% growth, 992 million euro. Equipment looks challenging, down 7%, but that is driven by energy storage. And we talked about it before, energy storage is a lumpy business. We had a slow Q3, you remember that, very strong Q4. And now in Q1, we yet again have a slow order intake in energy storage. If you take away energy storage, the rest, order intake on equipment is actually up with 19%. And order book increased with 17% now at 8.5 billion euro. And current deliveries, deliveries this year at 4.172 billion euro. And one thing we will talk about, we see all-time high on order backlog, but we also see longer and longer orders. So the sales will be spread out over more years, but we will come back to that. Net sales up with 18% at 1.6, close to 1.6 billion euro. And we see services continue to growing, 6% to 884 million euro. And equipment up significantly, 38%, 676 million euros. And book-to-bill continues well above 1 at 1.22. I think it's the 16th consecutive row that we continued 16 consecutive quarter that we continue to grow the book to build above one. Comparable operating result up 29% to 171 million euro touching 11% of net sales and then operating results up 30% to 165 million euro touching 10.6% of net sales. Starting with our outlook on the marine, on our industry view, we see a more mixed market sentiment. And demand for new ships was negatively affected by the growing uncertainty. So the number of vessels ordered in the review period decreased to 235 from 368 in Q1 last year. excluding reporting of contracts, excluding late reporting of contracts. A more mixed outlook, the heightened uncertainty, and also the caution around the measures suggested by the US against Chinese-linked ships slowed down the investment appetite in new ships in some segments. However, in cruise, strong growth and demand has enabled cruise lines to continue new-build investments and also ordering for new container ships remained relatively strong as liner operators progressed with fleet renewal plans. The outcome of MEPC-83 was also a step forward. I mean, the agreed proposal decision will be taken in October, hopefully, for a global carbon fee in the maritime markets supports the continued decarbonization journey. So in the first quarter, 85 orders for new alternative fuel-capable ships were reported, accounting for 36% of all contracted vessels and 65% of the capacity of the contracted vessels. And we also see on the graphs how the vessel contracting trends are panning out. We introduced the new dotted line with the 10-year average. So we clearly, 2024 overall was a year of very high orders. We also see in the bottom graph that the Wärtsilä key segments is trending around a 10-year average, so to say. Also in Clarkson's forward-looking Outlook. Turning to energy. Strong long-term prospects, but elevated uncertainty in the short term. And high load growth continues to drive new power capacity. Wind and solar are expected to post all-time high additions in capacity in 2025. The main driver for capacity addition for wind and solar continues to be favorable economics. Tariffs implemented by the US administration have impacted decision-making regarding new orders, in particular for battery energy storage. For thermal power plants, we still see customers going ahead. Demand for baseloan engine power plants is expected to remain stable. The drivers for balancing engine power plants continue to develop favorably in 2025 and beyond. Data centers is a promising baseload opportunity for us due to delayed grid connections. And according to EA, additional 45 gigawatts of power capacity is expected to be added for data centers between 2024 and 2027. So, once again, looking at order intake, it decreased by 2%, primarily burdened by energy storage and optimization, growth in the other businesses. Equipment order intake decreased by 7%, primarily due to the lower orders in energy storage, while engine power plants increased, actually with 35%. Service order intake increased by 5%, driven primarily by growth in marine. All-time high order book. So rolling book to bill continues to be well above one. Positive development. And here you can also see to the right that we have extended the periodization of the order backlog. So clearly we are seeing orders that will be delivered further in the future, so to say. And that is reflected in these numbers. Organic net sales increased by 18%, supported by growth in marine and in energy. Equipment net sales increased by 38%, supported by marine and energy as well. Service net sales increased by 6%, supported by growth in marine energy and portfolio business. And profitability continues to improve as well. Net sales were, of course, up 18%. It helped. Comparable operating results increased by 29%. And comparable operating results more than 12-month rolling, we came in at 10.9%, up from 9.2%. So, on the technology and partnership side, a lot of things happening and the decarbonization journey. We will start with our service business. We signed a lifecycle agreement to ensure operational reliability for 14 vessels in the CMA ship fleet. So we signed life cycle agreements with CMA, which is a subsidiary of the leading French shipping company CMA, CGM. The agreement covers 14 large LNG-fueled container ships already in operation. And under the terms of the agreement, we will provide a full-service package that secures reliable operation at fixed and minimized cost. And the order was booked in the first quarter of 2025. Now, some exciting news on the energy side, where we are introducing the next generation engine to balance renewables and improve power plant performance. So, basically, our next generation 46TS engine is designed to balance renewable energy, provide highly efficient baseload power, and run on sustainable fuels in the future. And the 46 TS engine will be available from this year, from 2025. And actually, in January, we announced the first order for the new 46 TS engine. And the first customer is Kazakhstan Caspian Offshore Industries. And it was placed in the fourth quarter in 2024. And these engines, they will support the COSI, new 120 megawatt power plant. And additionally, it's the first hybrid power project for its kind in Kazakhstan, where you basically integrate engine power plants with wind and solar. So it's very much a balancing application. Going into our businesses, looking a little bit closer, In marine, we continue the growth and we continue to improve profitability. So service net sales increased by 6%, supported by merchant, navy and ferry segments. You see the overall order intake is up 2%, net sales up 17%. We also see the rolling 12 comparable operating results at 11.9%. And the drivers on the positive side improved new build margins. Good work there. Higher service volumes clearly supporting and better operating leverage. Then on the detracting side, we continue to increase our R&D. We continued the strategy 3-4% in R&D of overall sales for the group. And then in Finland we had national strikes that also impacted the results negatively in the first quarter. Good development on the marine services side. So book to bill, well above one in all the service revenue streams. And we have introduced this graph that we will follow going forward. So we have the spare parts, we have the field service, the service agreements, retrofit and upgrades, and you see trending well above one. So we are growing. And if you compare to 2023, 11% CAGR in the Soviet side. So shifting to energy. The comparable operating results suddenly increased, and equipment order intake in energy power plants was up 35%, but clearly decreased in energy storage and optimization. So that led to an order intake overall down 15%. Net sales up 20%. Rolling comparable operating results at 11.1. And if you look at the drivers, we had EPP, which is the power plant business. We improved the profitability in our new build portfolio. And we also in power plants see higher service volumes. On the negative side, both EPP and battery storage have increased R&D costs. And on storage specifically, we continue the investments that we talked about before related to selective entry to new markets. Zooming in on energy storage, the comparable operating results decreased due to the mix of the project margin, of the projects that were executed, and also for the cost related to selective entries into new markets. Energy services, also good development, book to bell, well above one in all the service revenue streams. You see similar kind of development like in the marine side. Here we are up compared to Q1 2023 with 9% CAGR. So if we do the bridge queue on queue, so to say, from 24 to 25, what are the drivers? We see marine improving profitability from 11.4 to 12. We see energy coming down a little bit, primarily storage. from 11.1 to 10.8. Portfolio business really performing very well, improving profitability from 0.6 to 6.9. This is in line with what we have said before. We want to turn companies around and then sell them. And that led to improving the comparable operating results for the group from 10 to 11%. And basically increasing the comparable operating results with 29%. Now, earlier this quarter, we also communicated that we are separating energy into two independent segments, and we're also introducing new financial targets. So basically, from April 1st, we have three reporting segments. We have Wärtsilä Marine, Wärtsilä Energy, and Wärtsilä Energy Storage. And portfolio business continues to be reported as other business activities. And the change in the reporting structure will be reflected in our financial reporting starting from the second quarter of this year. The restated financial information for 2024 and for the first quarter of 2025 will be published during the second quarter of 2025. And to better reflect the new organizational structure, our board of directors has approved that we update our financial targets, so we will have combined financial targets for marine and energy, and separate new financial targets for the energy storage business. And just to give some kind of reference, for the last 12 months, marine and energy combined, comparable operating results was 12.9%, and an order intake increased by 9%. And just to recap the new financial targets, so marine and energy combined, 5% annual organic growth, 14% operating margin, and then the specific targets for energy storage, low double-digit annual organic growth, 3% to 5% operating margin. And then on group level, we keep the gearing and dividend targets less than 0.5% in gearing and more than 50% in dividends of earnings. So, Arjen, over to you.

Thank you, Håkan. Let's look at the other key financials for a moment. As Håkan mentioned, let's say cash flow from operating activities in Q1 was very solid, supported clearly by, let's say, good profitability, but also due to the fact that our working capital stayed on a very low level, actually. A negative level, I mean, here in this respect. As you can see from the numbers, working capital ended at 770 for the end of the quarter, which was more or less the same level as we had at the end of last year. Then it was 787. Good working capital development, good cash flow, net interest bearing debt going more negative. So also, let's say, good development in that respect. We have now also introduced, let's say, EBDA as a You could say earlier we had EBIT-A, which was more relevant in the time that Wetzel did a lot of acquisitions. This EBIT-A is what we believe is a more, let's say, used KPI also internally, because eventually this should turn into cash flow in the future. We also introduced another new KPI, Return on Capital Employed, which we also use actually internally a lot, and in this we also want to reflect externally. It's on a very good level, clearly driven by, let's say, a good operating result, as well as, let's say, a negative, very negative working capital at this point of time. Gearing improved from, let's say, end of last year to, to end of, let's say, quarter one, 0.31 negative at the end of last year, now 0.34 negative. Insolvency went a little bit worse, from 37.4 at the end of last year to 35.2 now, and that is driven by the decision of the AGM to pay dividend, and that has now been accounted for in equity. Earnings per share on, let's say, quarter level, 0.21, clearly, let's say, better than last year, Q1, and I would say on a very good level for the first quarter. Then if we look at the graphs, 12-month rolling cash flow, very strong, despite, let's say, a small downturn, I would say, Q4 last year to Q1 now, let's say on a rolling 12-month basis, but still in a very, very solid and good level. And also, let's say, looking at the working capital, I mentioned it before, 770, not so different from the situation at the end of last year, about minus 8% of sales ratio, and that compared to, let's say, five-year average, which is around 2.5%, 3%. So also working capital is very strong. I said it before, I will say it again. This is an extraordinary level. I do believe that, let's say, at the end of this year, we will land with a negative working capital, but not at this level. That is not what we believe. Mid to long term, I think it will go up a bit. With these words, I give it back to you, Håkon, on the prospects.